It has been shown that tumors have developed numerous ways to escape tumor specific immune responses. These mechanisms will ultimately not only enhance tumor growth, but also impair the effect of immune based therapies in cancer. Myeloid derived suppressor cells represent a recently identified cell population, which has been shown to impair tumor specific immune responses both in mice and human. MDSC can be divided in two subtypes (namely monocytic and granulocytic MDSC. We have been able to examine and define the regulation and function of murine MDSC by IFN-gamma.IFN-gamma induced STAT1 phosphorylation in both MDSC subsets, which led to NOS2 expression in CD11b+Gr-1dull/int monocytic MDSC and enhanced suppression of T cell proliferation. In sharp contrast, the suppressor function of CD11b+Gr-1high granulocytic MDSC was enhanced in the absence of IFN-gamma using IFN-gR-/- MDSC or IFN-gamma-/- effector cells, which led to upregulation of Bcl2a1 and improved survival of the granulocytic subpopulation during MDSC-T cell interaction. Likewise Bcl2a1 overexpression in CD11b+Gr-1high granulocytic MDSC supported their suppressor activity. Thus, depending on the local IFN-gamma concentration, STAT1 regulates the function of MDSC subsets antithetically so that these two cell populations can substitute each other and suppress antigen-specific T cell immunity.